The SME challenge: Staying on top of employee expenses and fraud

With globalisation continuing apace and the UK government on a drive to raise exports, the need for business travel to far-flung regions is not likely to reduce any time soon. One only need look at the dispute around airport expansion to understand that global travel is rising and putting a huge strain on resources. In that environment, it is essential that businesses maintain control over travel and expense costs while delivering a comfortable and safe experience to their globetrotting workforces.

Many firms, though, don’t understand the impact of staff travel and business expense costs to their bottom line, or how to manage it effectively. A survey by Forrester Research found that Travel & Expenses (T&E) was second only to maintenance and repairs as the second hardest business expense to control. Around 80% of businesses (from a total of 348) were not using automated tools for expense management systems; many were still using spreadsheets and their systems could not import data from other systems.

Meanwhile, world trade is expanding and moving eastwards. UK exports have risen by over a third to China alone in two years, according to a report released in March from the British government. This will put greater pressure on T&E budgets, as low cost carriers and budget hotels – which can be cost effective options for European travel – are unlikely to be available.

Closer to home costs are also rising. Already exorbitant London hotel rates are predicted to tick up 3.5% this year and outbound flights from the UK by 1%. As a snapshot of price movements in Asia, hotel prices in India, Indonesia and Hong Kong are expected to grow by 4.4, 7.8 and 4.3% respectively.

In 2013, global corporate travel spend hit $1.1 trillion – over twice the size of the US budget deficit – and it is expected to rise over 8% this year. This serves to highlight why having a T&E policy that emphasises cost control can have a sizeable effect on a business’s bottom line.

‘Luckily we don’t have to deal with any any employee expense fraud…right?’

One sensitive issue for businesses to contend with is tackling the persistence of fraud within travel and expenses. Companies that accurately monitor spend and produce reports on a monthly basis record significant declines in costs. This suggests that a regular checks alone causes employees to be more conscious of their T&E spend.

A report by Oversight Systems, which analysed $1 billion of transactions by 160,000 people, found that one in ten people had violated company policy more than once. The report also found that for a company with annual travel spend of $10 million, there was roughly $500,000 in spending that did not meet company policy. However, a brazen 5% of employees accounted for a jaw-dropping 82% of violations. This implies that targeted action to deal with these problematic persons can deliver big savings for companies. It also means questionable expense claims should be relatively easy to identify with statistical analysis, as these employees are likely to be outliers in their spending.

There are knock-on benefits from cracking down on T&E fraud: research has shown it is often employees engaged in this kind of policy violation that also take part in other kinds of fraud so rooting out this behaviour helps embed a culture of compliance across the business.

Regardless of the rise in technologies such as Skype for Business that facilitate virtual meetings, business travel is unlikely to disappear: an Economist Intelligence Unit report in 2013 found that 80% of executives consider it critical to staying competitive and increasing sales. While videoconferencing can work to exchange explicit information, tacit understanding and personal relationships will always form a key part of business. Videoconferencing is likely to complement an increasingly globalised way of doing business, but meeting people face-to-face and also spending time with them outside of the meeting room is likely to remain a business norm.

Firms have traditionally let travel and expenses bloat in the good times and got lean during downturns. One UK bank lopped 18% off their T&E budget after the crisis. But a more consistent approach is a far better way of smoothing and managing these costs for the long term, and preparing for what will hopefully be a period of healthy business growth.

With this in mind, here are a few tips for businesses:

• Clearly and automatically monitor T&E and produce reports on at least a monthly basis;

• Implement an expense payment system that provides maximum transparency and control over spending, such as FAIRFX’s Corporate Card programme that allows you to set spending limits and run integrated reporting;

• Make it relatively easy for staff to file expense claims, such as with an automated form with categorised drop down menus;

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